As the market is abuzz with the talk of a possible merger between the two e-commerce giants in the country, Flipkart and Amazon, the question that is raging now is whether the merger, if at all it happens, would get the nod from the Competition Commission of India (CCI).
The two firms together, according to some reports, account for almost 90 per cent of the e-commerce market in the country. Some experts believe that the merger may hit the CCI wall due to huge market share the merged entity may corner.
Manas Chaudhary, Partner at law firm Khaitan & Co, says: "To say that CCI may block a merger notification just on the ground that the merged entities may have 90 per cent market share after combination, is too simple an answer".
A competition lawyer, who did not wish to be named, says: "The commission has two aspects to look at - whether the relevant market is retail or it is limited to online retail." In some of the decisions in the past, the commission has been of the view that a lot of the products sold online are also easily available offline. "If they do this kind of analysis that the relevant market is the whole retail space then Flipkart and Amazon's market share collapses. If they narrowly delineate this as only online market, then the market share of the two would be very large and the merged entity might have a dominant position," says the lawyer mentioned earlier.
In case the competition regulator indeed thinks that the relevant market is online retail, then they can further narrow their view down to a vertical analysis to see in which sectors - fashion, electronics, etc - they have significant market share. According to the lawyer, the CCI could do two things: either they can say that the merger should not happen as the economic effect of the merger is too high, or they can let the merger happen provided the merged entity follows certain behaviour guidelines in terms of the way they deal with the vendors and so on. "Today an e-commerce firm can have exclusivity deal with a vendor because there is competition. But if the merged entity become 90 per cent of the market, exclusivity would be killing competition, and hence could be asked to refrain from such exclusivity deals."
Experts say that given CCI's track record of promoting consumers' interest and innovation, these two factors would weigh on mind of the regulator. The CCI may also keep in mind the fact that both Flipkart and Amazon are in the technology space and the market share dynamics change very fast in this market.
Manas Chaudhary of Khaitan & Co says, "Consolidations keep happening in tech markets, and if the consolidation is happening on economic efficiencies and technological innovative parameters, even if the market shares are high, the commission may allow the consolidation on merits with or without modifications. Each transaction will be decided on merit depending on the facts and circumstances of each case. Technologies disrupt market dynamics very fast. Innovation ensures 100% market share at the commencement of the commercial launch. But normally the enterprises lose such high market share very fast as new entrants enter the relevant market within very short span of the commencement of the new business by the predecessor."
Tech market is a very difficult proposition, one does not know how the market dynamics may change inducing fence-sitters to grab the opportunity and force the first-mover investing more on further innovation and R&D, he adds.
When it comes to cases of combinations, CCI's record is very 'good'. Out of 540-odd mergers that CCI has allowed so far, there are only 6-7 cases where it has asked for any modification. Typically, CCI takes on an average 25-30 days to approve a merger, which experts say is very good even by global standards.